The prospect for gold prices dimmed this week as Cyprus prepared to sell its gold reserves and minutes from the US Federal Reserve’s latest meeting again raised speculation about the end of the central bank’s stimulus program.

However, some investors believe up-coming US debt ceiling negotiations and seasonal demand, particularly from people in Asia getting married, will be good for prices.

Some precious metals analysts have called the decision by Cyprus to sell down its gold reserves a watershed for gold. The Financial Times reported a draft of the bailout document said: “The Cypriot authorities have committed to sell the excess amount of gold reserves owned by the Republic."

Spot gold has fallen almost 2 per cent to below $US1560 a troy ounce since news of the decision broke on Tuesday, European time.

UBS mining and resource analyst Jo Battershill said the Cypriot decision had shaken the gold market, where sentiment was already “pretty low". He said it was unlikely other distressed European countries would follow and sell their gold reserves.

“I see this as more of a special situation given the complete implosion of the Cyprus banking system," Mr Battershill said.

Cyprus has 13.9 metric tonnes (446,895 ounces) of gold, making it the world’s 61st biggest gold holder, according to the World Gold Council. The US, the largest gold holder, has 8133.5 tonnes. Germany is next with 3391.3 tonnes.

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They noted that, despite a resurgence in concerns about Europe and some disappointing US economic data, gold prices had hardly changed over the past month.

“We believe a sharp rebound in gold prices is unlikely," they said.

In further evidence that conviction around holding gold was withering, Bloomberg News reported holdings in the world’s largest exchange-traded gold fund, SPDR Gold Trust, had fallen to their lowest level since May, 2010.

UBS’s Battershill said in spite of poor sentiment towards gold there were reasons to expect a bounce in the second half of the year. He said gold prices could rise through June and July as the US’s debt ceiling negotiations flared up.

Seasonal factors are also likely to provide support. Gold tends to perform better during the second half of the year, as a UBS analysis of monthly spot prices to 1975 outlined.

Asian consumers, particularly bridal parties, are a strong driver of the increase in demand from September through to January.